Tax & Estate matters Last 10 tax tips for 2014 Doug Carroll JD, LLM(Tax), CFP, TEP Vice President, Tax and Estate Planning As is our practice in November, we’re using this issue to highlight some year-end tax issues. These tips are generally time-sensitive matters requiring action well before the final stroke of midnight for 2014. Also available: Doug shares essential information on financial and estate planning in a series of engaging videos you can share with your clients. Simply go to www.invesco.ca under the Resource centre. 01 1 Capital gains/loss selling – If you have realized capital gains this year or in any of the preceding three years (back to 2011), you may apply capital losses realized this year against those gains. Be sure to execute the trade by Wednesday, December 24 to allow for the three business days for settlement by December 31. 2 Spousal prescribed rate loans – There is no attribution to a higher-bracket taxpayer on investment income earned by a spouse on money loaned at the prescribed interest rate. The historically low 1% prescribed interest rate will continue into the first quarter of 2015. Remember, the rate established at inception can be used for the life of the loan, so long as interest is properly serviced. In that respect, be careful if a loan is put in place before the end of 2014, as interest is due each year no later than 30 days after calendar year-end. 3 Spousal RRSP contributions – Income attribution to a registered retirement savings plan (RRSP) contributor spouse will apply if the annuitant spouse makes a withdrawal before the end of the second calendar year following contribution. The rule works on a last-in/first-out basis, counting from the date of contribution, not the tax filing year for which the related deduction may have been claimed. For example, a contribution in January 2015 entitles the contributor to a deduction against 2014 income, but will be subject to attribution if withdrawn before 2018. If the contribution had been made in December 2014, a withdrawal with no attribution could be made as early as January 1, 2017. 4 TFSA withdrawals – The formula for calculating tax-free savings account (TFSA) contribution room includes withdrawals made in the preceding calendar year. If a TFSA withdrawal is planned for early 2015, it may be prudent to make that withdrawal before the end of 2014. That way, the contribution room credit will allow for re-contribution in 2015, rather than having to wait until 2016. For 2015, the annual allotment of TFSA contribution room is unchanged at $5,500. Tax & Estate matters 5 Final RRSP over-contribution for persons aged 71 – Contributions to an RRSP may only be made up to December 31 of the calendar year in which a person turns 71. Earned income in that age-71 year will not give rise to RRSP contribution room until the next year. Assuming this person is up to date with contributions, the person could still use this room by contributing the future entitled amount in December. The 1% per month over-contribution penalty will apply for that month, but the person will be back onside come January once the newly earned room is credited. (If there is a younger-aged spouse, another option is to simply contribute to a spousal RRSP in the new year when the RRSP contribution room is credited.) 6 Beginning public pensions – Someone commencing Canada Pension Plan (CPP) payments under age 65 in 2014 faces a per-month penalty of 0.56%. In 2015, it will increase to 0.58%, eventually reaching 0.6% in 2016. For those planning to begin a CPP pension imminently, delaying past December 31 could be costly. Conversely, deferring CPP after age 65 entitles the person to a 0.7% per-month premium, up to age 70. And don’t forget that as of 2013, Old Age Security may also be deferred up to five years, entitling the pensioner to a 0.6% premium for each month deferred. 7 8 Investment-related deductions – For non-registered investments, deductions may be claimed for investment counsel fees and interest on investment loans. In order to claim those deductions, the relevant payments must be made by December 31, 2014. 9 Ontario high-income earners – The temporary 2% additional tax announced in 2012 was made permanent in the 2014 Ontario Budget. For 2014, the income thresholds have been lowered (from $509,000 in 2013) to a 1% addition at $150,000 and 2% at $220,000. Once the 56% surtax is applied, the increase is 1.56% and 3.12%, respectively. As payroll programs would have been set under the prior rates, insufficient taxes will have been withheld throughout 2014. If an employer’s payroll department doesn’t increase withholding over the remaining pay periods to year-end, earners over these levels should consider setting aside some cash to address the shortfall. 10 Crossing borders – Though the U.S. Foreign Account Tax Compliance Act (FATCA) rules and Canadian T1135 reporting dominated the foreign-income headlines in 2014, the border itself deserves a mention. Canadians who spend more than 183 days in the U.S. over three years (based on a formula) may be required to file a U.S. tax return, even if no taxes are due. While U.S. Citizenship and Immigration Services has long tracked entry data, fixing departure dates has generally depended on self-reporting. This is about to change. Although the June 2014 start date was delayed due to a privacy law challenge, Canadian and U.S. border authorities plan to exchange crossing information, meaning Canadians will need to be much more conscious of their days spent in the U.S. Children’s Fitness Tax Credit (CFTC) – Depending on how quickly you can act (and how costly children’s programs are in your locale), you may be able to take advantage of the newly doubled CFTC. The original $500 amount for the credit goes up to $1,000 for 2014, leading to a potential $150 value for the credit, based on the 15% federal credit rate. The government is proposing to make the credit refundable for 2015. While not an exhaustive list, these 10 topics highlight key issues relevant to investors as year-end approaches. To discuss these tips – and for industry-leading advisor support throughout the year – our Tax & Estate InfoService is available via e-mail at [email protected] and by phone at 1.800.874.6275. 02 Tax & Estate matters Contact Invesco Canada Ltd. 5140 Yonge Street, Suite 800 Toronto, Ontario M2N 6X7 Telephone: 416.590.9855 or 1.800.874.6275 Facsimile: 416.590.9868 or 1.800.631.7008 [email protected] www.invesco.ca The information provided is general in nature and may not be relied upon nor considered to be the rendering of tax, legal, accounting or professional advice. Readers should consult with their own accountants, lawyers and/or other professionals for advice on their specific circumstances before taking any action. The information contained herein is from sources believed to be reliable, but accuracy cannot be guaranteed. Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the simplified prospectus before investing. Copies are available from your advisor or from Invesco Canada Ltd. * Invesco® and all associated trademarks are trademarks of Invesco Holding Company Limited, used under licence. Trimark®, Knowing pays® and all associated trademarks are trademarks of Invesco Canada Ltd. © Invesco Canada Ltd., 2014 ISTRTTE(11/14)
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